Welcome to this month’s Reader Case Study in which we’ll address Emily’s question of where to attend graduate school. Case studies are financial dilemmas that a reader of Frugalwoods sends to me requesting that Frugalwoods nation weigh in. Then, Frugalwoods nation (that’d be you), reads through their situation and provides advice, encouragement, insight, and feedback in the comments section. For an example, check out a previous Case Study.
P.S. Another way to support each other on our financial journeys is by participating in my Uber Frugal Month Challenge! You can sign-up at any time to join the over 11,500 fellow frugal sojourners who have taken the Challenge.
I probably don’t even need to say the following because you all are the kindest, most polite commenters on the internet, but, please note that Frugalwoods is a judgement-free zone where we all endeavor to help one another, not to condemn.
With that I’ll let Emily, this month’s case study subject, take it from here!
Hi, Frugalwoods Nation! I’m Emily, a 25-year-old single woman living in Washington, DC who grew up in the Midwest. I’ve (unfortunately?) acclimated to the high cost of living here over the past four years but the beer prices at “home” are almost enough to make me move back! I’m doing my best to buck the status quo and keep my expenses low, despite living in one of the highest cost-of-living cities in the country and experiencing the culture/lifestyle that goes along with that. I graduated from a Big Ten school in the Midwest in 2013 with a degree in a combination of sociology, political science, and gender studies.
To save money, I live in a small basement bedroom in a row-house with two roommates, walk to work, pack my lunch every day, split Netflix and Spotify accounts with friends, forego car ownership, host game nights with friends to replace some (but not all) bar and restaurant nights, and track my spending using the You Need A Budget (YNAB) method.
I was raised to think about money as a resource to be stewarded, not wasted. The idea of “putting your money where your mouth is,” or aligning your finances with your values, was a foundational element of my character development, which was modeled by my parents. When I graduated from college my father gave me Dave Ramsey’s Financial Peace, Thomas J. Stanley’s The Millionaire Next Door, and Charles Wheelan’s Naked Economics in a process he jokingly referred to as my “graduate degree in personal finance.”
I’m an outdoorsy beer and personal finance nerd. Working out, reading, and spending time with friends are my favorite pastimes. I attend a free bootcamp class put on by DC Parks and Rec twice a week, work out in my office’s small gym, and have a ClassPass membership that allows me to visit various fitness studios around town five times a month for group classes like boxing and spin. I also love to hike, which I try to do as much as possible.
Travel, education, and giving back are my three priorities that require a significant financial investment. I set aside money each month towards future travel plans and in 2016 I spent $2,700 on travel. I expect to spend more this year as I just returned from Israel and Greece and am taking trips to the Hamptons and Maine this summer. I also travel to the Midwest to see family and friends two to three times a year. I tithe monthly to my church and make a monthly contribution to NPR along with occasional contributions to other charitable causes.
I’m currently a program analyst at a social policy research firm in DC. I enjoy my job, but I also foresee the ceiling I’ll hit without a Master’s degree. I was promoted from within the company to my current position, but if I’d been hired from the outside, a Master’s degree would’ve been required.
Thus, I’m already paid as though I have a Master’s degree and I’m already doing “Master’s level” work, but in order to advance more, I’ll need an advanced degree. Not only is my firm and industry academically focused, I also lack certain technical skills that would help me excel in my field, which brings me to my…
Grad School Decision Dilemma
I recently applied to three graduate programs and was accepted to all of them with varying levels of funding. They each have slightly different implications for my current employment, my financial situation, and my future career path.
The below table illustrates this further, but the crux of my dilemma is as follows: is it worth leaving a job in my field to pursue a Master’s degree that’s significantly less expensive and will take much less time (at Carnegie Mellon) than an equivalent Master’s degree I can pursue over the course of three years while working full-time (at either Georgetown or Johns Hopkins)?
If I quit my job to pursue my MPP, which is what I’d do if I choose Carnegie Mellon, I’m concerned about losing the momentum I have in my career and about re-entering the job market in 16 months after my program is finished. On the other hand, I’m concerned about spending twice the amount of time and four times the amount of money on the same degree (from Georgetown or Johns Hopkins), just to remain working full-time, which–in all honesty–probably won’t make for a very fun 3 years.
There’s a slim possibility I could work part-time hours (24 hours/week) at my current position–and thus keep my job and benefits–while going to school at either Georgetown or Johns Hopkins. I’ll investigate this possibility thoroughly, but I don’t want to assume this option will pan out.
Paying For Grad School
My parents have generously offered to help pay for my graduate education and I’m cognizant of the extraordinary privilege their financial assistance imbues me with and I want to acknowledge how fortunate I am. That being said, I want to make this decision as though I were spending my own money, even though it’ll likely end up being a mix of mine and theirs.
My parents are incredibly generous when it comes to education and they paid for private Christian schooling through high school and then fully funded my undergraduate degree as well so that I didn’t have to take on any student loan debt. I’m nothing if not blessed.
Where I Want To Be In 10 Years:
- Finances: I’d like to own a home, double my salary, and be well on the way to having enough money set aside to make unconventional choices when it comes to life and my career. This might be quitting my job to travel for awhile, retiring early, working remotely from abroad, having the flexibility to volunteer, etc. I’m not sure exactly what my life will look like (which does make setting and achieving lofty goals difficult), but I want to create the financial flexibility to follow my own path.
- Lifestyle: I want to be happy, healthy, and enjoying life with those I’m close to. Maybe I’ll be married and have (or be thinking about having) kids. Maybe I’ll be traveling, investing in close friendships, and still on the lookout for Mr. or Mrs. Right. I want to be financially flexible enough, and have a flexible enough career, that I don’t need to put “working for other people and a paycheck” above investing in my own happiness and the happiness of those around me.
- Career: I’d like my skill-set and experience to be worth twice as much as they are now (see “double my salary” above), be highly respected in my field, and be doing new, creative, and innovative things. My current career goal would have 35-year-old me designing and testing behavioral interventions in the public policy context to save taxpayer dollars, improve social services, and increase government efficiency.
Grad School Comparison
Below is a comparison of the three graduate programs I’ve been accepted into and am trying to decide between.
|School #1:||Georgetown University, McCourt School|
|Degree:||Master in Public Policy|
|Timing:||3 years, part-time|
|Employment:||Remain employed full-time, living expenses and some tuition covered by salary|
|TOTAL TUITION COST:||$99,126|
|Employer Assistance:||-$21,000 (my employer offers $5,250/calendar year for tuition only)|
|TOTAL FOR ENTIRE PROGRAM:||$48,126|
|School #2:||Carnegie Mellon University, Heinz College|
|Degree:||Master of Science in Public Policy and Management|
|Timing:||16 month accelerated program, full-time (Fall 2017, Spring 2018, Fall 2018)|
|Employment:||Would need to quit current job; would likely secure part-time employment to cover living expenses|
|TOTAL TUITION COST:||$71,716|
|TOTAL FOR ENTIRE PROGRAM:||$10,757|
|School #3:||Johns Hopkins University|
|Degree:||M.S. in Applied Economics with a Certificate in Government Analytics|
|Location:||Online or in-person in Washington, DC|
|Timing:||2-3 years, flexible timing|
|Employment:||Remain employed full-time, living expenses and some tuition covered by salary|
|TOTAL TUITION COST:||$58,365|
|Employer Assistance:||-$21,000 (my employer offers $5,250/calendar year for tuition only)|
|TOTAL FOR ENTIRE PROGRAM:||$37,365|
Yearly Take Home (Net) Income
|Emily’s monthly take-home||$3,053.74||After 401k contributions, health insurance, and taxes|
|Emily’s annual take-home||$36,645.00||After 401k contributions, health insurance, and taxes|
|Rent||$788.33||This rent is pretty low for Washington, DC.|
|Luxuries||$350.00||This includes costs like restaurant food, alcohol, concert tickets, random luxuries (new gym bag, haircuts, Kindle, etc.) and any other kind of fun-oriented discretionary spending. I include this as one category because I can offset larger purchases by cutting back in other areas of luxury spending.|
|Travel||$350.00||I put money aside each month for travel.|
|Donation to Church||$305.00||Tax-deductible charitable contribution|
|Groceries & Personal||$255.00||I go out for lunch once a month at most and try to limit other opportunities to dine out. This could be lower but I love grocery shopping, cooking (and eating!), and often host friends for game nights or dinner parties which require provisions. This also includes things like make-up, toiletries, cleaning supplies, etc.|
|Transportation||$125.00||Mix of public transportation and ride sharing. I walk to work.|
|Cell Phone||$67.00||On my parents’ Verizon plan, pay my part of the family plan plus monthly iPhone payment (got a new phone this year) plus extra data since I use most of the data.|
|Gym ClassPass Membership||$59.00||Allows me to take five classes per month at various fitness studios around town.|
|Clothing||$50.00||I put this money aside each month to purchase clothing and shoes. In 2016 I actually spent about $1,000 on clothes but $600/year is my goal. I go through shoes and workout clothing like it’s my job and these end up needing to be replaced frequently.|
|Utilities||$40.00||Share utilities with 2 roommates and we rent out our dedicated parking spot for $100/month which we put toward utilities. This varies throughout the year but averages about $40.|
|Gifts||$40.00||I put this money aside each month to purchase gifts for weddings, Christmas, birthdays, etc.|
|Donation to NPR||$10.00||Tax-deductible charitable contribution|
|Dropbox||$10.00||$99 paid annually, used to store photos and documents|
|Renters Insurance||$9.58||$115 paid annually, required under lease|
|Netflix + Spotify||$8.36|
|401k||$27,000.00||I contribute 20% each month. My company contributes 3-4% at the end of each year (I just received the 2016 contribution) based on corporate profit-sharing calculations. I am also given shares of the company, but I don’t include a valuation of these shares as part of my net worth.|
|Low-fee index funds (through Betterment)||$7,600.00||I contribute $150/month to this investment account. This money is easily accessible in case of emergency.|
|Tuition Savings||$4,600.00||Current savings for education costs.|
|Next Month Fund||$3,053.74||I follow the YNAB method so I use last month’s income for this month’s expenses.|
|Emergency Fund||$2,200.00||I know this is small but I’m comfortable with it as I have other easily accessible funds in savings.|
Emily’s Questions For You:
- Where should I go to graduate school? See above comparison chart. Any advice on trying to negotiate for more scholarship funding would also be very much appreciated.
- What should my savings and investment strategy be moving forward? My goal for 2018 is to max out my 401k contribution (if I’m not working full-time this goal will be pushed to 2019), and I’m investing in low-fee index funds with Betterment. My next plan is to add Vanguard Total Stock Market Index Fund Investor Shares to my investment mix. Is there a better approach?
- How should I save for purchasing a home and is this even the right question? The DC real estate market is insane enough that purchasing a home feels like an unreasonable goal. But whether I buy in DC or elsewhere, I’d like to save for a down payment so that this goal is at least achievable at some point in the future. How would you (or did you) prioritize saving for your first home purchase? Is there anything you did that you would do differently looking back on it?
- If you were me, how would you push yourself to save more? I know my budget is flabby, but I’m finding it difficult to reduce my spending further without a concrete goal in mind. This is especially true because I feel like I’m saving more and spending less than most other people my age in DC.
Mrs. Frugalwoods’ Recommendations
Let me begin by saying WOW. At 25, Emily is in a better financial position than many people twice her age. This is an impressive rundown of assets and I commend her for educating herself on what to do with her money. I’m an advocate for managing one’s own money and Emily is a perfect illustration of that philosophy. Also, huge congrats to her for contributing to her employer’s matching 401k program–always the right choice (more on 401ks here). Ok, onto her questions…
Emily’s #1 question: Grad School Showdown
I think we can eliminate Georgetown right off the bat since it’s so much more expensive, yet offers the same location and ability to continue working, as Johns Hopkins. Unless anyone can suggest a way for Emily to secure more scholarship funding, I think G-town is off the table.
My questions for Emily are:
- How much do you like your job?
- How much do you enjoy living in DC?
- Will you definitely earn a higher salary with an MPP?
Moving to PA to attend Carnegie Mellon, while cheaper, would entail giving up her apartment (which, I can attest, is the cheapest rent I’ve ever heard of in DC), leaving her friends (and the excellent hiking–Mr. FW and I lived in DC when our love of hiking blossomed), and quitting a job that I gather she enjoys. Finding a job you love is no easy feat and so I’d pause long and hard before giving it up. Another consideration is that I imagine most (if not all?) of Emily’s job prospects will be in DC and moving to PA for grad school will take away valuable networking opportunities in the district.
To my third question, I’m pretty sure Emily has already gamed this out, but I just want to confirm that this MA will command a higher salary. In some professions, there’s a clear pay increase with an MA, but in others, there’s not. Without the commensurate pay increase, I would advise forgoing graduate school altogether. I’m saying this more as a general bit of advice since Emily already mentioned that she can’t advance any higher without an MA.
My suggestions are a bit biased here because I attended grad school in Washington, DC (at American University) while working full-time (also at AU because that entitled me to free tuition). So what I will say is that it’s possible–though not terribly fun–to go to school full-time and work full-time. If Emily wants to retain her current job, not have the resume gap of going to grad school, and continue living in DC, it’s possible to do.
Another pro of continuing to work is that Emily would keep her benefits. Since she’ll turn 26 while in grad school, she’ll no longer have the option of hopping on her parents’ health insurance and, if she doesn’t keep her job, she won’t have employer sponsored health care.
All that being said, Johns Hopkins is quite a bit more expensive than Carnegie Mellon. I don’t think Emily has any intention of taking out student loans to cover costs, so again, I offer general advice to not go into debt for a degree program. While I lean towards Johns Hopkins since it would enable Emily to stay in DC, keep her job, and go to an excellent school, the choice is ultimately a personal one and I don’t think there’s a clear cut right or wrong answer.
Emily’s #2 question: Investing
I actually advise Emily to pull her money out of Betterment and instead funnel it into low-fee index funds through either Vanguard or Fidelity for the simple reason that Betterment charges higher fees than Vanguard and Fidelity yet does basically the same thing. When investing in low-fee index funds (which is what I recommend and what Emily is wisely doing), it doesn’t matter which company you invest with, the end product (low-fee index funds) is the same.
An index fund simply means that you’re invested across the entire stock market, which is proven to return a higher rate than utilizing a pricey money manager to pick specific stocks for you. This is also the frugal approach to investing since the fees associated with investing in these funds are very low (hence the name ‘low-fee index funds’)–as opposed to that pricey money manager. By investing across the entire market, you’re diversifying your assets and you stand to benefit from any gains in the market.
In sum, close the Betterment account and put all your investable cash into either Vanguard’s Total Stock Market Index Fund (VTSAX) or Fidelity’s Total Stock Market Index Fund (FSTVX). No need to go with more than one company–that doesn’t add any diversity to a portfolio. Everyone’s risk profile is different, but I recommend that a young person like Emily heavily weight towards a stock index fund (like the aforementioned VTSAX or FSTVX) as opposed to bonds. For more on investing, check out this post and this one too.
If Emily happens to have substantial capital gains, she should transfer assets from Betterment to Fidelity or Vanguard as opposed to cashing out. If she cashes out her investments, she’ll be charged capital gains tax on any gains her investments have made. However, if her gains aren’t substantial, it might be easier to simply cash out and then reinvest.
And now onto 401ks… By ‘maxing out’ her 401k, I assume Emily is referring to contributing the maximum amount allowed by the IRS, which is $18,000 per year. I’d say this is a fine approach unless she’s serious about buying a house in the near term. If Emily wants to shore up a downpayment in the next five years or so, don’t go all the way to $18k on the 401k and instead save those extra thousands for a downpayment.
Emily’s #3 question: Buy a home?
Should Emily buy a home? It depends. On one hand, buying a home can be a great asset in a diverse portfolio–particularly if that home is in a hot market that’d make it very easy to turn into a rental, such as Washington, DC. That being said, if Emily is interested in living a more nomadic, traveling lifestyle, owning a home might not make sense, unless it’s as a revenue generating rental, which again, DC is a great market for–provided she can find something cheap enough to buy.
Home ownership can be a good financial choice or a poor one–it’s not a slam dunk decision and it shouldn’t be considered the end all, be all of financial planning. Whether or not to buy depends on a multitude of factors including the housing market where you live, your financial picture, your future plans, and how handy you are since homes are forever in need of one repair or another.
But the one thing that Emily should definitely do is continue saving. Since she specifically asked what others have done, I will say that when we were her age, Mr. FW and I were saving around 50% of our income with the sole goal of buying a home in Cambridge that would one day become a rental property. Saving up enough to buy in a place like DC (or Cambridge) is no small feat–but it is 100% doable for someone like Emily who is debt-free, determined, and already in the habit of saving. I will say though, if she’s serious about buying a house, her savings rate needs to grow, and/or she needs to increase her salary–preferably both. If she’s interested in testing the waters, I’d highly recommend she start cruising open houses on the weekends–it’s fun, it’s educational, and she’ll get a good handle on what the market is like in DC. Mr. FW and I went to over 270 open houses before we bought our first home (see our tips here).
Since the question of whether to buy or not to buy is complex, I’m going to recommend some additional reading to Emily:
- Why your house is a terrible investment by: JL Collins
- Is Buying Better Than Renting? by: Mr. Frugalwoods
- Is It Better to Rent or Buy? (with interactive calculators!) by: The New York Times
Emily’s #4 question: How can I save more?
Emily’s doing a great job, but she can certainly save more if she wants to. The one red flag that jumped off the page at me was her mention of possibly retiring early. If Emily wants early retirement as an option, then saving at a higher rate (alongside a higher salary) will be necessary. But I do want to back up and give some mad props here since we’re talking about a TWENTY-FIVE year old with a net worth of $44,453!!! I mean, please, this woman knows what she’s doing. So, I highly doubt my savings advice will come as a surprise to her.
How Emily could save more:
- Eliminate the “luxuries” category as well as the gym ClassPass, especially after becoming a student since she’ll likely have free access to the university’s gym.
- If Emily wanted to save in service of a specific goal, I’d reduce the charitable contributions slightly as well as the travel fund. This would be applicable if, for example, she wanted to save up a downpayment in a shorter period of time.
- The transportation line item seems a tad high. Since she already walks to work, I’d recommend perhaps biking other places if that’s possible.
- Decrease or eliminate the clothing line item (shop used, trade clothes with friends, etc)
- Research cheaper cell phone providers, such as Boom (I pay $19.99/month through Boom), Ting, or Republic Wireless.
Savings Accounts Side Note
One of the easiest ways to optimize your money is to keep it in a high-interest savings account. With these accounts, interest works in YOUR favor (as opposed to the interest rates on debt, which work against you). Having money in a no (or low) interest savings account is a waste of resources because your money is sitting there doing nothing. Don’t let your money be lazy! Make it work for you! And now, enjoy some explanatory math:
- Let’s say you have $5,000 in a savings account that earns 0% interest. In a year’s time, your $5,000 will still be… $5,000.
- Let’s say you instead put that $5,000 into an American Express Personal Savings account that–as of this writing–earns 1.70% in interest. In one year, your $5,000 will have increased to $5,085.67. That means you earned $85.67 just by having your money in a high-interest account.
And you didn’t have to do anything! I’m a big fan of earning money while doing nothing. I mean, is anybody not a fan of that? Apparently so, because anyone who uses a low (or no) interest savings account is NOT making money while doing nothing. Don’t be that person. Be the person who earns money while sleeping. Rack up the interest and prosper. More about high-interest savings accounts, as well as the ones I recommend, here: The Best High Interest Rate Online Savings Accounts.
Emily is concerned that she doesn’t have a total life plan figured out yet, but I wouldn’t worry about that at all. I certainly didn’t have my life mapped out at her age!
And the reason I’m not worried about Emily is that she has identified the crucible of financial truth–the one thing that I hope readers of Frugalwoods will take away from my crazy ramblings–the fact that FRUGALITY GIVES YOU OPTIONS.
Frugality doesn’t have to be in service of a concrete goal (such as buying a house), frugality can be in service of living a life like Emily’s: unencumbered by debt, free to travel, free to work a job she genuinely enjoys, free to max out her 401k, free to invest, and free to live whatever life it is that she chooses.
If in 10 years Emily wants to be a stay-at-home mom, she’ll probably be financially able to do that. If in 10 years, Emily wants to start her own company, she’ll probably be financially able to do that. If in 10 years, Emily decides to become a professional hiker and backpacking guide, she’ll probably be financially able to do that. Frugality is the universal belief that no one has ever regretted having money in the bank. It’s also the belief that happiness, and lasting joy, doesn’t actually come from spending money at all.
Ok Frugalwoods nation, what advice would you give to Emily? She and I will both reply to comments, so please feel free to ask any clarifying questions!
Would you like your own case study to appear here on Frugalwoods? Email me (firstname.lastname@example.org) and we’ll talk.
Updated May 26, 2017 with Emily’s decision:
I made my decision–I’ll be going to Carnegie Mellon in the fall! I attended an event a few weeks ago at Carnegie Mellon’s DC office where I learned about their “DC Track” of the program. In this track, the first year is classes in Pittsburgh and the second year is classes in DC plus a 32 hour/week “apprenticeship.” This appealed to me because: 1) I was feeling less thrilled about leaving DC than I originally thought, 2) 90% of the apprenticeships are PAID (woohoo!), and 3) It would cut down on my time out of the workforce, even though I would be in classes for a semester longer than the 16-month track. Hearing from the Frugalwoods community was key in helping me think about this choice in the broadest terms, and to challenge my preconceived notions about what I valued in a program and why. Thank you so much!
Updated 1/18/19 with more info from Emily:
My net worth hasn’t gone up much in the past 2 years, but I am in excellent financial shape for what I’ve been able to accomplish in the last two years since doing the Case Study! I started graduate school at Carnegie Mellon (3 semesters down, 1 to go) and was able to live off my investments for my 9 months in Pittsburgh [MAJOR caveat that my parents paid my rent, health insurance, and tuition (85% off though so it wasn’t crazy expensive!)]. I also spent 2 weeks in Southeast Asia over my winter break, and used travel-hacking tips from TravelMiles101 to do it on the cheap (and without going into debt of course).I had the chance to do an awesome summer internship that recruits directly from my program (and not from the other 2 programs I was considering when doing my case study!) and that paid $1,250 PER WEEK for 8 weeks of the summer. I also got an offer to go back to that company after graduation with a starting salary of $97,000/year AND with a $20,000 signing/relocation bonus. This company also pays you back for what you spent on your second year of grad school after you’ve been there for 2 years, so I’ll be able to pay my parents back for what they spent on my tuition during school.I’m currently working 32 hours/week for $25/hour in a position that is exactly what I need to be doing and learning during this second year of grad school which has been an amazing opportunity. The money coming in right now doesn’t allow me to save or really put money away but I still feel like I’m doing well because I haven’t dipped into my signing bonus and I haven’t taken on any debt. I’m definitely looking forward to graduating this upcoming May!